Why Home Sales Dropped in August Despite Falling Mortgage Rates and Increased Listings

Diccon Hyatt is a seasoned financial and economics journalist who has extensively covered the pandemic-era economy through hundreds of articles over the past two years. He specializes in breaking down complex financial topics into clear, accessible language, highlighting how economic trends impact personal finances and the housing market. His experience includes work with U.S. 1, Community News Service, and the Middletown Transcript.

Key Insights

• Home sales declined by 2.5% in August compared to July, remaining near historic lows.
• Although mortgage rates dropped and housing inventory increased, these improvements have yet to stimulate significant market activity.
• The “lock-in” effect, caused by the gap between today’s high mortgage rates and the ultra-low rates secured during the pandemic, discourages many homeowners from selling.
• While lower mortgage rates may gradually ease market conditions, meaningful affordability improvements depend on resolving the nation’s persistent housing shortage.

Despite a reduction in mortgage rates and an uptick in homes available for sale during August, home sales continued their slow pace. The National Association of Realtors (NAR) reported a 2.5% decrease in existing home sales from July to August on a seasonally adjusted basis, resulting in an annualized rate of 3.86 million—down 4.2% from the previous year.

This sales pace ranks among the slowest ever recorded by the NAR, comparable to levels seen during the Great Recession in 2009, and marks the lowest August sales rate since 2010. This decline occurred despite improvements in two critical factors: mortgage rates and housing inventory.

By the end of August, the average 30-year mortgage rate dropped to 6.35% from 6.78% in July, the lowest level in over a year according to Freddie Mac. Meanwhile, available homes increased slightly by 0.7% to 1.35 million—higher than the 1.1 million available in August 2023 but still significantly below the 1.83 million pre-pandemic listings in August 2019.

Lower Mortgage Rates Offer Limited Relief

Lawrence Yun, NAR’s chief economist, described the slow sales as "a bit of a disappointment," expressing hope that the favorable factors—lower mortgage rates and increased inventory—may boost sales in upcoming months.

Mortgage rates fell further in early September following the Federal Reserve’s decision to cut its key interest rate by 50 basis points, the larger of two possible cuts. This move exerts downward pressure on borrowing costs, potentially enhancing buyers' purchasing power and improving housing affordability.

Lower rates may also reduce the “lock-in effect,” where homeowners hesitate to sell due to the financial disadvantage of replacing their low-rate pandemic-era mortgages with higher current rates.

However, high prices remain a barrier. The median home price in August rose 3.1% year-over-year to $416,700, continuing to challenge affordability despite rate declines.

Investor Activity Crowds Out First-Time Buyers

First-time buyers face increasing competition from investors, who purchased 19% of homes in August, up from 13% in July. Meanwhile, first-time buyers' share of transactions dropped from 29% to 26%. Both groups often compete for more affordable properties, intensifying market challenges for new entrants.

Yun characterized this trend as investors effectively pushing first-time buyers out of the market.

This dynamic has attracted political attention. Vice President Kamala Harris, a Democratic presidential candidate, has proposed limiting large investment firms from buying single-family homes as part of broader reforms aimed at enhancing housing affordability.

Housing Shortage Remains a Fundamental Challenge

Yun anticipates that sales may increase in coming months as contracts signed during more favorable conditions in August are finalized and recorded.

Nevertheless, Federal Reserve Chair Jerome Powell emphasized that falling mortgage rates alone cannot resolve the housing market’s fundamental issue: a chronic shortage of homes. Speaking after the Fed’s rate cut announcement, Powell stated, "We have had, and are on track to continue to have, not enough housing. All aspects of housing are increasingly difficult. Where will the supply come from? This is not something the Fed can fix."

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